Thursday, November 4, 2010

A sustainable Australia?

Clancy Auditorium, UNSW
Thursday, November 4, 2010

My strongest reason for opposing continuing high levels of net migration is my scepticism about the airy assurances from economists and others that continued population growth is compatible with an ecologically sustainable Australia. Economists offer these assurances not because they’ve thought deeply about Australia’s ecological carrying capacity - it’s not a subject they know much about - but because they’re used to thinking about the economy in isolation from the environment and because they have a suspiciously convenient faith in the ability of technological advance to solve environmental problems and faith in the ability of increases in man-made capital to substitute for the depletion of non-renewable resources, the over-exploitation of renewable resources, the degradation of waterways and soil, the destruction of species and the damage to ecosystem services (such as carbon sinks).

But since I’m no expert on ecology either, I’ll stick to something I know a bit about. It’s to warn non-economists that the contribution of immigration to increased material prosperity isn’t all it’s cracked up to be. There’s no doubt that net migration causes the economy to grow - to be bigger because it has more people in it. Businesses want a bigger economy because it gives them more people to sell to and profit from. From their self-interested perspective, that’s quite rational. But for economists and politicians it’s not good enough to assume that bigger is better, to believe in growth for the sake of growth. No, according to their narrow, materialist perspective, growth is only a good thing if it makes us better off, if it raises our material standard of living, if it increases real income per person.

Now here’s the thing: although economists don’t like to talk about it - don’t like to think about it - plenty of studies have shown that immigration does little or nothing to raise real income per person. What little gain there is goes to the immigrants themselves, not the pre-existing population that invited them in. This conventional but little-trumpeted finding is confirmed by the most recent study, undertaken by the Productivity Commission in 2006.

So why is it that adding extra workers tends not to raise the average standard of living? Well, it’s well understood by economists: it’s because all those extra people require additional spending on capital - ‘capital broadening’ as economists call it - if the average amount of capital per person isn’t to fall. The extra people need to be supported by additional capital in their private lives - more housing - additional capital equipment in the firms where they work, and additional public infrastructure: more roads, more public transport, schools, hospitals, power and water. Thus the economic benefit of having more workers is essentially cancelled out by the cost of providing the extra capital that needs to go with them and their families (most of which has to be borrowed from foreigners).

The fashion among economists at present is to ignore this glaring drawback and focus on more seemingly appealing arguments, such as that high immigration will reduce our problem with ageing (true but exaggerated) and Professor Peter McDonald’s argument that politicians don’t determine the size of our immigration, the needs of the economy do. There’s some truth to this, but then economists point to the resources boom and the massive increase in construction activity it involves and conclude we must open the immigration flood gates to avoid skilled-labour shortages and wage inflation. Actually, we only surrender our control over immigration to the economy when we proceed from the assumption that economic growth is pretty much the only thing that matters and that the role of the natural environment can be left out of the model.